An Analysis of the Price Formation Process at a HUD Auction

Abstract

This study considers whether auctioned properties sell for different prices than they would bring through private negotiation. After reviewing the procedural aspects of the Department of Housing and Urban Development auctions, we compare the observed prices of properties sold at one such auction with predicted market values based on assessment ratios for the region to detect any discount or premium. We also consider whether the order of sale of the auctioned properties affects observed prices. We find that sample properties sell at a significant discount relative to predicted market values and that prices tend to increase as the auction proceeds, holding quality of the properties constant.